The Forgotten Book that Helped Shape the Modern Economy

A British merchant's long-forgotten work, An Essay on the State of England, could lead to a rethinking of how modern economies developed in Europe and America, and add historical perspective on the proper relationship between government and business. An interview with business historian Sophus A. Reinert.

by Sean Silverthorne

A British merchant's long-forgotten seventeenth-century book may not only fuel a radical rethinking about how modern economies developed in Europe and America, but also add historical perspective on today's hot-button issue of the proper relationship between government and business.

In his new book, Translating Empire: Emulation and the Origins of Political Economy, Harvard Business School historian Sophus A. Reinert unearths John Cary's An Essay on the State of England. Writing in 1695, Cary laid out a powerful case for how England, through muscular government intervention in economic affairs, could create national wealth based on manufacturing. This production would be fueled by an imperialistic British Empire, which through its expansion would provide the needed raw materials.

The book proved extremely persuasive at home and also abroad after being translated into French, Italian, and German. Government leaders and policymakers in each of these countries were influenced by the Essay's key idea that government should be a dominant player in helping shape economic development.

Of particular interest to Reinert is that modern-day economists and historians seemed to have forgotten this fact. "Where the consensus today is that eighteenth-century economists believed that free trade would bring peace and prosperity to all, the mainstream of political economy at the time was actually preoccupied with how trade could be a form of conquest and how political communities could best nurture and encourage their industries against foreign competitors."

We asked Reinert to discuss his book and some of its central ideas.

Sean Silverthorne: How did you get the idea for this book? I'm especially interested in how you hit on the format to hang your work on John Cary's little-known Essay on the State of England?

Sophus Reinert: My book is essentially about how political economy first emerged as an "academic science" in the early modern period, and about the actual ideas and policies—the national strategies of the 1600s and 1700s, so to speak—that successfully led to economic development and were therefore emulated in other nations at the time. The idea for it probably came from my love of old books, which allowed me to see quite starkly the discrepancy between past and present fame in the discipline of economics. The most printed and most translated books were just not the ones other scholars were talking about. I wanted to read and write about those books.

I first had the idea of hanging the book's structure on Cary when I saw on my shelf a number of increasingly voluminous translations sitting next to what to me seemed a distressingly tiny original. Cary's 1695 Essay had indeed been cumulatively translated three times (into French in 1755, Italian in 1757-58, and German in 1788). The Italian and German translators never even returned to the original English edition, and the work gained hundreds and hundreds of pages along the way. This provided me with a unique opportunity, because all the changes that were made to the text survived as archaeological layers for me to excavate. The ever-expanding Essay became my way of making sense of the larger question I was facing—namely, how a rigorous history of political economy overturned the classical narrative of Western divergence in the eighteenth century.

Q: Why is the Essay and its various translations written for other countries important for our understanding of the development of the political economy in Europe and the New World?

A: Because they help us understand the actual ideas and policies that were influential as Europe first took off relative to the rest of the world. They also shed light on the historical interconnection of businesses and governments at the dawn of real globalization. The reigning idioms of political economy, its proposals, and their implementation in the long eighteenth century were very different from the ideas later celebrated by the economics profession.

"We need to completely rethink what economic ideas were actually influential in that period."

Whether or not we like it, we have to accept that European governments played a crucial role in assuring the Continent's competitive development, and that international emulation was a major vehicle of this process. This is something of which "founding fathers" from Alexander Hamilton to Manuel Belgrano were all too aware, and my book concludes by highlighting the historical irony of how European debates about political economy were translated with time across the Atlantic in the late-eighteenth and early-nineteenth centuries. Through acts of translation, and in the context of intense processes of international and even global emulation, what previously had been tools of empire became instruments of liberty; economic ideas once marshaled to the cause of imperialism were transformed into a political economy of independence in former colonies, a political economy anchored in the essential necessity of encouraging domestic industries on the British model.

Q: Why do you think Cary's work became so influential in those times and places? And why did it lose that influence, especially with academics, in the modern era?

A: At home, Cary became influential because he was an eloquent architect and popularizer of English imperial policies. In fact, he found ardent supporters in this all the way from lowly London artisans to intellectual luminaries like John Locke. Abroad he became influential because he revealed the economic principles driving England's success.

Cary was theoretically innovative in justifying the relative importance of manufacturing for national wealth and translated this insight into a sustained political and publishing campaign to ensure that the English and later the British Empire would consist of an industrializing core and a periphery producing and providing raw materials. He offered convincing arguments for extreme government interventions to ensure the development of domestic industries, and the profound and measurable success of these policies lionized him further, not only in England but also in the European world more broadly.

But as the British Empire matured, its policy needs changed and so did the way it understood its own self-image. When John Ramsay McCulloch essentially invented the British economic canon in the mid-nineteenth century, he downplayed the likes of Cary in favor of historical unknowns like Dudley North, a pamphleteer whose work had no impact and was never republished or translated, but who is today curiously thought to be representative of his age. This historiographical problem was clear to many historians in the 1920s and '30s, but was again unfortunately forgotten because of the direction in which economic theory developed in the postwar period.

Over the last few years, we have arrived again at an uncertain economic juncture in which a more historical perspective on economic theories and practices is acknowledged to be important. Our attempts to solve the present problems of the West will necessarily strengthen this trend.

Q: How does your research change the ways economists might think about the foundations and future of their discipline?

A: My analysis of the actual flows of economic translations in the European world between 1500 and 1849 suggests that we need to completely rethink what economic ideas were actually influential in that period. The mismatch between the ideas that historically had consequence and those that contemporary scholars have claimed to have had consequence is truly staggering. If we want anything like a realistic idea of how the world got where it is this has to be remedied.

"Our debates should be over what sort of interventions and what level of regulation is appropriate in a given context rather than whether regulation itself is a moral good or evil."

Where the consensus today is that eighteenth-century economists believed that free trade would bring peace and prosperity to all, the mainstream of political economy at the time was actually preoccupied with how trade could be a form of conquest and how political communities could best nurture and encourage their industries against foreign competitors. In addition to ideas, the economic policies resulting from them in the early modern period will need to be engaged with more actively by historians and economists. It is now obvious that economic policies, even aggressively interventionist ones such as high tariffs, at times have had extremely beneficial consequences for some.

At the very least, this suggests that we need to acknowledge the possibility of positive synergies between governments and businesses and conceive of economics in light of this. And the policymakers and business leaders of the future can only benefit from a more accurate view of the role of government in economic development in the past.

Q: In the upcoming presidential race, this issue of to what extent government should regulate or encourage commerce will be a central debate. How does your research help us think about this question?

A: History is a mirror that is both reflecting and distorting, and can very seldom offer us easy answers to current problems. That said, it can raise the level of our debates on these issues.

We are stuck now, not only in the United States but in many European countries, in a polarized polemic in which pundits and politicians alike suggest to us that the essential question of political economy is one of choosing between planning and laissez-faire, between Stalin and Ayn Rand, between stupidity and intelligence. This is as specious as it is dangerous. The encouragement and regulation of economic life has been a mainstay of civilization since the dawn of written history. There have been periods of dogmatic laissez-faire before, though never on the scale we have experimented with since the 1980s, and it must be said, they have tended to end in famine, bankruptcies, and social unrest. Governmental interventions can of course create much mischief, but they have also nurtured practically every economic miracle we know of, from the commercial revolution in Renaissance Italy to the nineteenth-century USA to South Korea in the 1960s and contemporary China. This does not mean that governments always know what they are doing, far from it, but it does indicate that our debates should be over what sort of interventions and what level of regulation is appropriate in a given context rather than whether regulation itself is a moral good or evil.

Joseph A. Schumpeter once wrote that his reader would "have to make up his mind, whether he wants simple answers to his questions, or useful ones—in this as in other economic matters he cannot have both." Schumpeter's point is admittedly difficult to sell in the "sound-bite" culture of our political debates, but that's why it is so important.

Q: What are you working on now?

A: I am currently working on a book about Renaissance economics and its legacy. In all fields of human endeavor, from art to zoology, the Renaissance is praised as one of the most creative periods in human history. Yet in economics, it is simply discarded as an era of wrongheaded "mercantilism." My new book aims to look beyond that by analyzing the nature and politics of capitalism as it first emerged in the different Italian city-states of the late Middle Ages, by seeing how subsequent economic development was first theorized there in the late Renaissance, and finally by embracing the enduring ideas and institutions that it bequeathed us.

Some of the issues I consider are the cultural origins and reflections of capitalism; the rise of accounting and accountability; the origins of industrial policy in the West; and the ways in which merchants and bankers thought about risk, particularly the deadly risk of international trade. Just to take one example: Roughly 2 million Europeans sailed eastward around the Cape of Good Hope with hopes of economic gain in the early modern period, and less than 1 million made it back. This is not because they all married beautiful Fijians and settled down, but because they died prematurely. This tells us a great deal about the nature of early capitalist ventures and the economic culture we have inherited. This was not merely casino capitalism, it was Russian roulette capitalism.

Finally, I do close readings of the actual economic texts of the time, particularly of those related to the so-called reason of state tradition, from Machiavelli to Giovanni Botero and Antonio Serra, generally acknowledged to have been the world's first economist. Harvard Business School is uniquely able to facilitate such research. Not only does Baker Library hold one of the greatest collections of Medici manuscripts outside Italy, it is also home to the Kress Collection of Business and Economics, arguably the most comprehensive collection of early economics found anywhere. The institution in effect has a very long history of engaging with such questions, dating back to its first dean, Edwin F. Gay, and it is simply an extraordinary place to work on the deep histories of capitalism and economics.

About the author

Sean Silverthorne is editor of Harvard Business School Working Knowledge.

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John Weinmann

Managing Director, Waverly Capital, LLC

You mention that "It is now obvious that economic policies, even aggressively interventionist ones such as high tariffs, at times have had extremely beneficial consequences for some." While undoubtedly true, those benefits come at the price of great human misery. When an economy succeeds on the basis of government intervention rather than the benefits the players in the economy bring to the table, those that are harmed by that policy historically have resorted to armed conflict. Economic regulation by government succeeds best when it is utilized in the smallest possible way. That should be the basis for the discussion. History tells us that to do otherwise may reap short term gains, but tends to end very badly.

Wayne Jett

Managing Principal, Classical Capital LLC

My thanks to you, Messrs. Silverthorne and Reinert, for bringing closer attention to historical experience with government intervention in the economy. On Prof. Reinert's point that the nature of regulation of economic affairs ought to be the focus, I agree and offer the following thesis as the proper nature of regulation.

Force, violence and deception ought to be prohibited, stopped and punished. Other intervention, including level of taxation, ought to be kept at the lowest level possible consistent with national security. This will permit the greatest personal liberty and highest private prosperity.

I call your attention to my recently released book The Fruits of Graft - Great Depressions Then and Now (Launfal Press, Los Angeles: 2011), which sheds light on the role of mercantilism in U. S. policy during past centuries and presently. Even periods of laissez faire are notable for giving powerful mercantilists total license to do as they wish in the private economy. In addition, The Fruits of Graft clearly discloses J. M. Keynes' move into the mercantilist camp with his writing of The General Theory.

I hope these comments may assist your work, and again thank you for sharing your insights.

Keith Williams

Principal, Profit Improvements

I find it strange that the learned professor does not make reference to the outcomes of the British imperial policy or that the work he refers to was at the time of the South Sea Bubble.
Mr. Weinmann is correct to point out that our past imperial policies led to unacceptable human misery not only in the dominions but also as a result of maintaining the Empire. Britain was fighting wars, large and small, for more than 150 years. The end of the War to end all wars is honoured here tomorrow and we need to remember that truce was Hitler's initial justification. Margaret Thatcher tried to end the intervention of the British government in business. Governments must now adapt policy to the markets and not attempt to influence them, even the USA no longer has sufficient power and influence. I think current events in Europe demonstrate this.
"What experience and history teach is this - that people and governments never have learned anything from history, or acted on principles deduced from it."
G. W. F. Hegel

Seev Hirsch

professor Emeritus, Tel Aviv University Business School

As a student of Ray Vernon I was happy to note your interest in the relationship between Political Economy and international Business and it relevance to today's public policy issues.
You might be interested in the following quote from J.M. Keynes on the role of British Multinationals: "The hazarding of capital resources in foreign parts for trading, mining and exploitation is an immemorial practice, which has generally proved of immense benefit to nations with the courage, the temperament, and the wealth to follow it. For the English and the Scots it has been, beyond doubt, the foundation of their national fortunes. The risks are recognized to be great, but the profits are proportionate".... "Nothing that I shall say here must be interpreted as casting a doubt upon the national advantage of investments of this kind".

It is good to dig into past history to learn how such issues were managed then. Emphasis on manufacturing as the way to better earnings holds now too. Unless we manufacture, we would not earn. However, total government control over all activities is not desirable in the present times. Public-private participation is the better model and it is evolving well.
Laissez-faire could be ideal but the economic factors prevailing now are adverse to such freedom. All countries face complexities of various sorts and forces of competition decide how to go about. No country can work in isolation as globalisation has its impact.
Hence, 3-4 century old books contain material mostly worth academic interest and generally would not have practical application now.

Anonymous

Economic expansion in Europe in the period 1500-1900 was simply based on exploitation by fire-power of the abundant natural and human resources in conquered lands. This came at great cost and misery to the colonies. The greatest war crimes were committed during this time by the expansionist imperial powers.

okerre stanley

acting head finarncial control, premium pension limited

While govt. intervention could be said to have helped europe and america to develop and manage an evolving economy in the earlier years,Africa, now also as an evolving economy has suffered from such interventions.Rather than view the economy as a universal entity and chanell govt. involvement to create national wealth,african leaders rather restrict govt regulations n political intervention to individual gains to d detriment of the soceities they govern.

Motty Perel

A veteran of many jobs., ANTS

Sophus Reinert does useful work. Knowledge of the past helps to avoid old mistakes.
However, the contemporary economic crisis of the Western developed countries stems from the circumstance that the workforce armed with technology produces more than the population is buying: the rich do not need to buy that much because they do not need to consume more, while the poor cannot afford to buy more because they earn not enough money. In addition, the employees became aware of the fact that their time has applications other than at work, being unemployed stopped being a tragedy and maximizing productivity only enriches the employer, so they produce at a level of productivity that corresponds to corporate survival, which keeps their jobs intact -- and not more. The technology, while raising the level of productivity and increasing the cost of production and increasing the ratio of the employer's expenses for means of production to expenses on labour, does not consume; hence even more is produces than consumed and more potential employees stay without jobs or lose jo
bs.
Once one understands the situation, the solution becomes apparent: instead of limiting the income of an employee to his wage/salary (which in fact, since the workforce controls the productivity of the technological equipment, became only a payment for coming to work rather than a payment for work being done, as it used to be before the advent of technology), this payment should include the wages and the entire profit on the workforce's labour. The change will switch the peer pressure within the workforce from limiting productivity to corporate survival to productivity maximization. The increase in productivity will be so significant as to overcompensate the forfeiture of profit on labour by the employer. Now the worker turns from an employee (literally "the used one") to an entrepreneur who invests his labour for personal profit. Since then, the workforce's earnings will increase to the extent that the workforce will be able to eventually buy all it produces and the
n some. This "then some" will eventually bring full employment and even create foreign employment, but for a different reason than today.
Once the above is accomplished, the economy of the developed courtiers will advance smoothly. And then we can come back to the discussion if government intervention desirable or otherwise.
For details go to www.ProfitOnJob.com

Jim Sorensen

President, Sorensenergy, LLC

Dr. Reinert's project is indeed an interesting one. However, re: applying Cary's lessons and principles to the current economic challenges faced by the U.S., it's critical to reflect on the similarities and differences between 17th century England and today in the U.S. Unless there is an extraordinary ratio of natural resources to population(e.g., as in Qatar), a modern economy's average standard of living is always tied to its competitiveness in the global market; i.e., to the ability of the economy to produce goods and services at prices competitive with alternatives from abroad. In the case of 17th century England, government intervention was indeed helpful---via facilitating the supply of off-shore natural resources from the colonies at an attractive cost and thus enabling the competitiveness of England's economy. Because such a government-driven solution is not available for our competitiveness challenges in the U.S., the
free market has addressed the need by shifting a significant percent of its manufacturing capacity to off-shore, low labor cost locations. And this trend has exacerbated the impact on U.S. manufacturing, as countries with low cost labor also attract investment in the most advanced and productive manufacturing equipment. While a "grand solution" may be elusive, U.S. government policies in today's environment need to be laser-focussed on encouraging creativity, entrepreneurship and investment---enabling our factories and businesses to better compete in a brutally tough global market---and away from stimulus spending(of non-existent resources) that will do little or nothing to address fundamental issues. Without such policies, it will be not be possible to achieve the growth and generate the jobs and resources that American industry and workers are capable of.

Earl Okezie

CEO, WordmartNigeria

I think this is a great work. But I'm wondering how African leaders can take advantage of the many positive lessons history presents to better the lives of their people. Today, interventions by governments in Africa more often than not fuel corruption and deepen poverty levels. That's my worry.

bright lucky

mba student

what is subsidy and what can you profer to an economy bent removig subsidy that could eventually to hardship on its citizens.